Budget Brief No. 26 – Government Spending: How Much Money is Tied up in State Corporations?

Oct 02, 2014

Key Points

State corporation budgets are opaque. It requires time-consuming research to determine how much they get from the budget each year.
State corporations were allocated Ksh 352 billion in the 2012/13 financial year (FY 2012/13). This was more than 30 percent of Kenya’s total budget for all Ministries, Departments and Agencies (MDAs). Furthermore, state corporations accounted for roughly half of all development expenditure in FY 2012/13.
In FY 2012/13, almost 40 percent of the budgets of state corporations were funded by external sources in the form of loans and grants.
A number of state corporations perform devolved functions and should be reformed in some way. In FY 2012/13, state corporations controlled roughly Ksh 117 billion in funds related to both devolved and concurrent functions, but 45 billion of this was externally financed and cannot be devolved.
Additional funds from internally generated revenues of nearly 30 billion (Appropriations in Aid) could plausibly be devolved, but most of this funding was for roads, over 40 percent of it for national roads. The road funds that should be devolved might be devolved through conditional grants rather than given to counties outright for their use.
While some of the remaining Ksh 42 billion should be considered for devolution to counties, many state corporations, such as water service boards, perform regional functions and should not simply be dissolved. It may make more sense to restructure these corporations to give counties managerial control than to dissolve them and redirect their funding to county budgets.
In general, slashing state corporation budgets without well-conceived policy reform may actually undermine services and lead to a lack of clarity about who is responsible for delivering them.
There has been little reform of state corporations since 2012/13. The 2014/15 budget shows that those corporations performing potentially devolved functions have actually increased their budgets by a small amount since devolution began.

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Authors

Jason Lakin

Senior Research Fellow, International Budget Partnership

John Kinuthia

Senior Program Officer, IBP Kenya, International Budget Parnership

John is a Senior Program Officer at the International Budget Partnership Kenya (IBPK). He joined IBP in October 2012 just as Kenya’s ambitious devolution program was taking off. John leads IBPK’s research and analytical work in Kenya, and he is part of the team that works to promote budget transparency and to improve public engagement on how the government raises and spends public resources.

He has done extensive research on Kenya’s public finance system for evidence generation that IBP uses to provide technical support to civil society organizations and, in some cases, government agencies. John’s research focuses on equitable revenue sharing mechanisms, equity in government expenditure, social protection, budget credibility, public participation in budgets, sub-national budget transparency, among other areas. His role also includes supporting capacity building and the publication of guides and tools that IBPK uses to improve community engagement with national and sub-national government budgets. John also plays a role in coordinating IBP’s programmatic work in Kenya, including supporting fundraising and administrative tasks.

John holds a Bachelor of Science degree in Physics from Jomo Kenyatta University of Agriculture and Technology (JKUAT), an MBA in Strategic Management from the Kenya Methodist University, and a professional award on Decentralization and Local Governance from SOAS University of London.

Before joining IBP, John worked with Twaweza East Africa as an Associate Analyst, where he helped to build the Kenya Budget Explorer, a centralized budget portal, to improve citizens’ access to budget information. He is a big data enthusiast, a happy bee farmer, and a part-time historian.

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